Mark Cuban and Ashton Kutcher-backed esports gambling venture Unikrn settled today with the Securities and Exchange Commission, agreeing to pay back investor funds as well as a $6.1 million fine.
“Unikrn agreed to settle the charges by paying a $6.1 million penalty, substantially all of the company’s assets, to be distributed to investors through a Fair Fund,” the SEC said in a statement. “Unikrn also agreed to disable the UKG (the UnikoinGold token), publish notice of the order, and request removal of UKG from all digital asset trading platforms.”
The company tweeted that it is retiring its portfolio of tokens and winding up the business. Aside from UnikoinGold, Unikrn Loot, Unikrn Connekt and UnikoinSilver are all headed to the crypto graveyard.
Today we’re retiring Unikrn Loot, Unikrn Connekt, UnikoinSilver & UnikoinGold.— UnikoinGold (@UnikoinGold) September 15, 2020
The SEC will operate a fund for token holders who would like a refund — to participate, please withdraw your UKG from Unikrn to a private wallet.
Unikrn’s fall from grace
Like many ICOs from the class of 2017, the platform’s token has seen a significant decrease in value to the point where it’s virtually worthless. The token’s value peaked at around $2 in 2017, and today it is worth less than a cent. It has a market cap of $1.6 million and trades about $4,000 a day, according to metrics site CoinMarketCap.
Initially, Unikrn argued that its eponymous tokens were, in fact, utility tokens granting token holders early access to the platform — an argument used by virtually every token project in existence that ran afoul of the law.
But the SEC is rarely receptive to such a train of thought, and the commission alleged that the sale was made in a way to allow investors to profit from trading of the token.
“Unikrn promised investors that it would facilitate a secondary trading market for the tokens and that its efforts to increase the usages for the UKG token would increase demand for and in turn, the value of the tokens,” the Commission continued in its statement.
For its part, Unikrn said that it would settle the case “without admitting or denying the SEC’s findings.”
The $6.1 million settlement represents more than the current market capitalization of the token. At its peak the token had a market capitalization of $240 million.
A ‘Unikrn’ with a dull horn
At the time of the Unikrn project’s launch in 2017, esports was quickly rising in popularity. As with any sport, people wanted to bet on it, but there were two barriers: sports betting — let alone online sports betting — was illegal in most states, and state athletic commissions were struggling to deal with the prevalence of the anti-ADHD drug adderall, which has performance enhancing effects for gamers, as a testing and integrity regime was essential in order to provide gamblers with a fair betting environment.
But in the days since the launch of Unikrn, both these market pain points seem to have been solved. Fueled by interest in monetizing the growing fantasy sports segment, the New Jersey Supreme Court legalized online sports betting in a May 2018 ruling, and the state quickly become a hub state for online sports gambling. Twenty-two states have since followed in New Jersey’s footsteps creating legal frameworks for online sports betting. As a testament to the newfound popularity of online sports betting, fantasty sports platform and sports-betting operator DraftKings recently announced a three-way partnership with ESPN and casino giant Caesars Entertainment to expand its offerings.
Esports betting has also seen a parallel meteoric rise. Though legal in only a handful of states such as Nevada, New Jersey, Tennessee, and West Virginia, the pause in professional sports due to Covid-19 has pivoted institutional attention to the segment. As the global pandemic cancelled the majority of the world’s professional sports in March, in particular the much-watched March madness, bookmakers were only left with Sumo Wrestling and Belarusian soccer to keep punters engaged.
That was until eNascar took off, a Vegas-sponsored event that saw real Nascar drivers race their virtual cars via the Nascar Heat 5 video game. According to Nielsen, 1.6 million unique viewers tuned in — which is roughly on par with the audience of a TV broadcast of the real-life sport. All of this was alongside the usual assortment of esports games such as DotA, Counter-Strike, and League of Legends.
According to market research from iGB, a gambling industry research house, revenue from esports gambling is predicted to reach $343 million by the end of 2020. For the sake of comparison, the total online betting revenue in New Jersey, one of the key hub states for online gambling, is $128.3 million year to date and came in at $244.4 million for all of 2019.
Effectively, Unikrn, with its grey area crypto offerings and offshore betting, was pushed out of the market by legal onshore offerings. There’s now no need to virtually traverse offshore to the Isle of Man where Unikrn was licensed and pay via cryptocurrency.
But there was still a dissenting opinion
SEC commissioner Hester Peirce, known as a fintech proponent and frequent dissenter to SEC rulings, came to the defense of Unikrn in a published statement.
“We should strive to avoid enforcement actions and sanctions, however, that enervate innovation and stifle the economic growth that innovation brings. I believe that this action and its accompanying sanctions will have such consequences,” Peirce said, in a statement. “By failing to challenge ourselves to experiment with new approaches to regulation, we, and those whose interests we are pledged to serve, risk surrendering the fruits of innovation.”
In a recent interview with Forkast.News, Peirce said that the rigidity of the Howey Test, which dictates what is and isn’t a security, is stifling fintech innovation in the U.S.
“I think it’s really making it impossible for a project to get started without falling into that Howey definition,” Peirce recently told Forkast.News Editor-in-Chief Angie Lau. She added that the Howey Test has “been a quite useful framework for us to think about whether an investment contract is, in fact, a security. But it does lead to some really interesting questions about whether things that none of us might have thought are securities actually are securities.”